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Cyclicals, financials and German real estate will be biggest winners from QE in Eurozone, says ING IM


Eurozone cyclicals and financials and German real estate are set to outperform under the increasingly likely scenario of quantitative easing (QE) by the European Central Bank, according to ING Investment Management (ING IM).

Such assets will be the biggest winners from full-scale QE, which could give a push to equity markets in Europe generally through higher valuations and improving earnings momentum.
Patrick Moonen, senior strategist, multi asset at ING Investment Management, says: “There has been a growing divergence between the relative performance of cyclicals in Europe and the US, which is a logical result of the divergence in economic performance of the two regions. A recoupling is possible if policy easing in Europe revives reflation hopes.
“Based on the US experience with QE, financials could do well, too. Banks are also cyclical and if monetary policy drives economic growth then this will also drive bank earnings. Spread tightening is another positive for peripheral banks. The Asset Quality Review and stress tests will restore confidence in the sector, leading to higher valuations.
“We also expect higher real estate prices in Germany as real rates would fall further for a private sector that is running a high financial surplus with low private debt levels. German real estate prices are cheap relative to other countries and home ownership is low.”
ING’s base case in Europe is QE, which could also lead to a depreciation of the Euro. This would help Eurozone growth, inflation expectations and improve the earnings growth of Eurozone companies.
Moonen adds: “If this happens, we would not exclude that over the next 18 months the growth rate of Eurozone earnings will be higher than in the US.”

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